Insanity is sometimes defined as doing the same thing over and over again while expecting a different result. On this basis the Euro-statists are clinically over the edge. They keep centralizing more power in Brussels and then they complain that European economies remain stagnant. On this basis, the new EU President must have escaped from the sanitarium, because he is asking for “economic government.” This means, not surprisingly, more power for Brussels to harmonize and regulate in hopes of creating the imaginary nirvana of a competitive social model. But I have to admire the perseverance of the “federalists,” as they are known. Every time they expand power, such as the recent Lisbon Treaty (basically a sanitized version of the statist EU constitution), they claim that they don’t intend to push for more centralization. Yet the ink is barely dry on one agreement before they start pushing for more powers. You would think European citizens would wake up to this boy-who-cried-wolf scam, but since the “European project” is fundamentally anti-democratic, most of them have ceased paying attention.

The European Union’s new president, Herman Van Rompuy, is calling for an “economic government” for the bloc, with closer policy coordination and financial incentives for good performers. …”Whether it is called coordination of policies or economic government,” only the European nations working are “capable of delivering and sustaining a common European strategy for more growth and more jobs,” he underlined. …The evocation of a European “economic government” will please France which has lobbied in this direction for years without success. …Thursday’s summit will also will also prepare the ground for a new EU economic strategy, focussing on investing in research, innovation and the green economy. This will replace the bloc’s Lisbon Strategy launched in 2000. The ambitious Lisbon Strategy was supposed to make Europe’s economy the most competitive and dynamic in the world. It failed to do so and Van Rompuy was happy to bury it. …For Van Rompuy it the matter is urgent and strikes at the very heart of the European project. …”Our structural growth rate is not high enough to create jobs and sustain our social model,” he warned.

The fiscal crisis in Greece is fascinating political theater, in part because the Balkan nation is a leading indicator for what will probably happen in many other countries. The most puzzling feature of the crisis is the assumption in other European capitals, discussed in the BBC article below, that a Greek default is the worst possible result. It certainly would not be good news, especially for investors who thought it was safe to lend money to the government, but there are several reasons why the long-term pain resulting from a bailout would be even worse.

1. Bailing out Greece will reward over-spending politicians and make future fiscal crises more likely. In a four-year period between 2005 and 2009, Greek politicians expanded the burden of government spending from an already excessive level of 43.8 percent of GDP to an even more excessive level of 51.3 percent of GDP. Subsidies are rampant, the public sector is bloated, civil service pay is way too high, and entitlements are wildly unsustainable. A fiscal crisis – with no escape options – is probably the only hope of reversing these disastrous policies. So why, then, would it make sense for Germany and other nations to provide an escape option?

2. Bailing out Greece will reward greedy and short-sighted interest groups, particularly overpaid government workers. Greece is in trouble because the the people riding in society’s wagon assumed that there would always be enough chumps to pull the wagon. In reality, Greece is turning into a real-world version of Atlas Shrugged. Government has become such a burden that the job creators and wealth generators have given up and/or moved their money out of the country. Should taxpayers in other nations reward the greed and narcissism of Greece’s interest groups by being forced to pull the wagon instead?

3. Bailing out Greece will encourage profligacy in Spain, Italy, and other nations. The hot acronym in public finance circles is PIIGS, which is shorthand for Portugal, Ireland, Italy, Greece, and Spain. Greece is getting all the attention now, but these other countries have the same problems of excessive spending, bloated and dysfunctional public sectors, and unsustainable finances. What happens in Greece will send a very clear signal to the politicians in these nations, much as a parent who lets the oldest child run rampant is sending signals the younger siblings. Does anybody doubt that a bailout of Greece will discourage the other PIIGS from undertaking needed reforms?

4. Bailing out Greece is not necessary to save the euro. This is the most puzzling feature of this Greek tragedy (sorry, I couldn’t resist). There is a pervasive assumption that a default somehow would cripple the common currency of most European Union nations. But why would a default in Greece undermine the euro? If California went under, after all, that would not cripple the US dollar. There are unpleasant things that would probably happen following a Greek default, but the stability and strength of a currency is a function of central bank behavior. And so long as the European Central Bank does not crank up the proverbial printing press to monetize Greece’s debt, the euro should be fine.

In my darker moments, I have sometimes warned audiences of what will happen when a majority of voters in a country or a state become dependent on government. In such an environment, it obviously becomes much more difficult to put together an electoral coalition that will lead to fiscal changes that shrink the burden of government and curtail the predatory state. This is what has happened to Greece, and what is soon going to happen in other European nations (and, barring reform, what will eventually happen in the United States). The irony of this situation is that even the folks riding in the wagon should favor reform. After all, a parasite needs a healthy host.

Despite heavy rain, there have been rallies across Greece throughout the day, with thousands of striking workers and pensioners gathering in the capital, Athens. Several thousand people were also reported to have protested in Greece’s second city, Thessaloniki. The rallies have been mainly peaceful, but in one incident police fired tear gas at rubbish collectors who tried to drive through a police cordon. …The unions regard the austerity programme as a declaration of war against the working and middle classes, the BBC’s Malcolm Brabant reports from the capital. He says their resolve is strengthened by their belief that this crisis has been engineered by external forces, such as international speculators and European central bankers. “It’s a war against workers and we will answer with war, with constant struggles until this policy is overturned,” said Christos Katsiotis, a union member affiliated to the Communist Party, at the Athens rally. …On Tuesday, Prime Minister George Papandreou’s socialist government announced that it intends to raise the average retirement age from 61 to 63 by 2015 in a bid to save the cash-strapped pensions system. …Mr Papandreou has already faced down a three-week protest by farmers demanding higher government subsidies. …The markets remain sceptical that Greece will be able to pay its debts and many investors believe the country will have to be bailed out. The uncertainty has recently buffeted the euro and the problems have extended to Spain and Portugal, which are also struggling with their deficits. The possibility of Greece or one of the other stricken countries being unable to pay its debts – and either needing an EU bailout or having to abandon the euro – has been called the biggest threat yet to the single currency. Ahead of the talks between EU leaders in Brussels on Thursday, some business media reported that Germany is preparing to lead a possible bail-out, supported by France and other eurozone members.